Businesses and generations evolve; we can’t avoid it.
Through the growth and maturity of an organisation, to the exit of some or all of the owners, evolution is an inevitable and integral part of running a business.
Family-owned businesses should consider a number of factors when determining who will continue the family legacy into the next generation. Often, these aren’t simple decisions. What many small business owners often won’t realise is that making provisions for business evolution involves much more than just preparing a will.
One common issue that arises during business evolution planning for family businesses is a lack of communication. In many cases, a conversation around the future of the business and where it is headed has not yet happened; the family patriarch or matriarch has built up an idea in their head and assumed the role of future generations within the business but has not yet discussed it with the whole family.
The key focus for business evolution discussions should be understanding the perspectives and goals of all involved and ensuring the plan is universally accepted. Planning should include comprehensive succession planning, to help families remain united into the future.
Beginning this process with an in-depth conversation among the family is crucial. Agreeing on what is needed to grow the business and futureproof it for forthcoming generations is a great first step to ensuring transparency ahead of transitionary periods.
James Allen, Partner at Bentleys SA, professional services and accounting firm, notes how some family businesses may need more support than others.
“Some families have good communication structures and have laid the groundwork for business evolution many years ago; these families immediately see and understand the value of this process,” notes Mr Allen.
“In other cases, businesses can find it difficult to provide for the expectations of some family members if their needs have not been known or discussed previously.
“It is vital to for family businesses to identify any discrepancies in their evolution plans while there is still time to rectify the issue and achieve the right result for the family and the business. Addressing succession early can avoid arguments, and the potential breakup of key assets, after the death of a matriarch or patriarch.”
Planning for the future of the business as it evolves provides clarity as to how operations will move forward in the future, creating mutual understanding and removing unrealistic expectations.
If done early, business evolution can create time for the family to build other assets for any family members who may not be continuing in the business, creating as fair an inheritance as possible.
A business evolution plan can address the entire structure of the business, including the procurement of key employees, the development of future business structures, the improvement of processes and the business capital needs. The process is an in-depth assessment of, and plan for, a variety of elements pertaining to the business’s outlook.
An unclear pathway forward can also result in unsuitable protection for the critical assets that are essential for the business to function. The business asset as a whole could be split between two siblings but one sibling may not want to be involved in running the business, thus potentially creating operational impacts. Or, insufficient planning may cause distraction whilst other important matters need to be resolved, in turn taking focus away from the key strategic needs of the business.
Planning for business evolution assures business owners of a clear action plan to achieve their goals and objectives for the family business. It covers all aspects of the business, including cash flow, asset protection, skills required, and capital required, allowing family wealth to be preserved and grown.
Mr Allen also notes that it can help the family dynamic outside of the business as well.
“Clarity and a well laid-out plan can help the next generation get excited and gear up to expand and grow the business, while providing a sense of relief to patriarchs and matriarchs who have carried the burden of driving business success for some years,” he said.
Mr Allen recognises how identifying and implementing a clear strategy and action plan can help family businesses leave a lasting legacy.
“At Bentleys, we can work closely with you to understand your businesses’ unique circumstances, developing a roadmap that details how you can smoothly manage the succession process and maximise your family’s wealth.
“There’s no one-size-fits-all solution. Your Advisor will tailor your business evolution plan to suit your needs, your family, and your legacy.”